Haven't seen a thread on personal investing!! Is no one interested in money matters around here? If not let me know, I'll PM my address and you can transfer all your assets to my name Just kidding...

Earlier I wanted to start this thread primarily on Real Estate investments in TN, but then thought doesn't hurt expanding it for tips and suggestions on personal investing as well.

Include anything related to money and investing in this thread like RE, RE appreciation rate in your area, Retirement planning / what you do for it, Portfolio asset allocation strategy, kids / student education funds, mutual funds, stocks, Gold, taxes and even commercial RE in TN if anyone is interested.

NRI's too feel free to pitch in with your experiences on how you balance between your overseas and Indian investments, your tax minimization strategy (legal) etc., It will help folks around here to know / learn about country specific details. Will help future NRI's too

Let's learn from each other on how to make money

Note to Admin: Thought a lot about whether to open this thread under India section or here, but then since when it comes to RE the primary interest is within the state I thought it makes sense to have this thread here. SSCI-ans from rest of India section are welcome to participate as well.

__________________To learn who rules over you, simply find out who you are not allowed to criticize - Voltaire

Here is a good video explaining inflation, current world economy and gold.

You can broadly apply what this guy says about China to India too but in a much smaller scale.

Warning: Lot of his investment advice makes sense only for Americans and is not relevant to Indians. So dont base your investment decision on this blog. I posted the video just for the economic fundamentals, not as an investment advice.

__________________Everybody has a plan until they get punched in the face - Mike TysonThe only plan to successful investing is try not to get punched in the face - Myself

When GDP growth reaches 17%, There will be no inflation. But both need not be concurrent. For example, GDP growth(around 7%) and inflation (6%) was low in 2009 because money flow was conservative and its "velocity of flow" was less. But as it started flowing into the real economy, both went up to 9 and 11% respectively. This basically compensates for FY2009.

What RBI should do?

Print (or create) no more money than the actual GDP growth. This is necessary for price stability.

Why is it printing a "bit extra"?

Its the government's wish. By printing more, it creates inflation which is a silent blanket taxation on everybody holding cash and cash equivalents. The government always runs a deficit budget, borrows the money from RBI, pays back in inflated rupees. This way the government is taxing in a blanket way rather than in a differential way. This is one of the reason why rich gets richer and poor gets poorer. The central and state government has absolutely no motivation to run a budget surplus. This is also the reason why government often projects inflation as a good thing "necessary for growth". No matter what the "experts" in media tell, this is not true. In reality all it does is silently rob the people.

Have minimal level of cash, cash equivalents and cash linked instruments (FD, RD, bank deposits, bonds, insurance plans). Always convert currency into tangible assets. Go for high yield yet safe money market instruments. There are lot of such hidden instruments available in India which are not mainstreamed.

What is wrong with U.S?

Since M3 is GDP growth plus inflation, they think by increasing M3, they can somehow kick start GDP growth. What is really happening is that the money is flooding the consumer part of the economy and government spending on unproductive economy. Since all the money created is based on debt, it only pushes the country deeper and deeper into debt which the future generation cannot afford to pay. The recovery which is statistically projected in the US is nothing but accounting fiction. In reality, foreclosures are increasing, capital is scarce, economy is deteriorating, and the US government thinks printing money will solve the problem.

Why there is no Inflation then?

Because the money created is sitting on bank balance sheets and has not yet entered the economy. As the velocity of flow picks up, the west in general and U.S in particular would enter a period of persistent stagflation (economic stagnation+high inflation). Coming out of the stagflation, U.S economy will be much smaller w.r.t the world's economy (currently its around 25% ), the standard of living of Americans would have been substantially reduced. Everyone wouldn't be able to afford large independent homes in sprawling suburbs. People will be forced to move closer to their place of work and live in high rise apartment blocks closer to CBDs. The cost of fuel would be much higher. As a result, although most will have personal vehicles, a considerably higher proportion wont be driving it like they do it now. Either they will be closer to work or will start using electric vehicles/public transport. Reverse migration of not only foreigners but also native Americans to emerging economies particularly to Asia and Brazil will increase. It will also be forced to change from a consumption driven to a production driven economy.

All these, I foresee happening within the next 10 to 15 years.

Quote:

Originally Posted by seku

interesting. i dont know much about these theories, and just curious to know little more.

1. If it's so simple and clear (i mean the steps to be taken) to reduce the inflation, then why these points are not put forward to govt in sound manner. say, even the opposition should be aware of these facts. other than, blaming the govt's failure to control the inflation, i dont see much is being done by opposition.

2. is it that worth to risk their govt, by not controlling the inflation. coz, almost everywhere and all opposition parties are taking the word inflation against the govt (though not constructive). and its not a problem only with india, even other countries also face this. there should be a strong reason / show stopper for the govt to control, i feel. else, if its controllable only by stop printing currencies, then at least few countries would have done.

3. in recent days we see INR value is raising against many other currencies, in particular USD. does it has anything to do with inflation?

may be i'm missing some basic points behind.

Quote:

Originally Posted by TShyam

1. If it's so simple and clear (i mean the steps to be taken) to reduce the inflation, then why these points are not put forward to govt in sound manner. say, even the opposition should be aware of these facts. other than, blaming the govt's failure to control the inflation, i dont see much is being done by opposition.

Its a simple case of "kada thengaya eduthu vazhi pullayarukku odaikara kathai" (Rob paul and pay peter). The government in India basically survives on spending taxpayers money on vote yielding policies. What successive governments does is simply a little more than cash for votes. If the opposition comes to power they should also do this. That is why they dont prescribe these things. Another thing is our opposition (BJP) itself runs some state governments which run budget deficits. So congress can quickly rebuff if BJP raises these points. By introducing a mild inflation (say 2 to 3%), it has a policy tool to silently rob our peter (vazhi pullayar in Tamil example) too without peter himself knowing it. The problem arises only when it shoots up as it is now. You see no party will raise these issues unless the people in mass demands it. But our people are more interested in 1000 rupees + chicken biryani + 1 quarter policy. So dont expect any change. As Frederic Bastiat said "The state is the great fiction by which everybody seeks to live at the expense of everybody else."

Unless this mentality changes, budget deficits will continue.

2. is it that worth to risk their govt, by not controlling the inflation. coz, almost everywhere and all opposition parties are taking the word inflation against the govt (though not constructive). and its not a problem only with india, even other countries also face this. there should be a strong reason / show stopper for the govt to control, i feel. else, if its controllable only by stop printing currencies, then at least few countries would have done.

As I have said, if inflation is less than 3 or so percent, its almost imperceptible in day to day life. So government always prescribes those kind of inflation as it would seem the people are also earning more and more each passing year. Its only when the velocity of flow increases dramatically from one point of time to another, that we see such sustained periods of inflation as we are seeing now. And regarding your last line, government need not stop printing currencies, but it should be in line with the increase in produce of a country.

3. in recent days we see INR value is raising against many other currencies, in particular USD. does it has anything to do with inflation? may be i'm missing some basic points behind.

INR is raising only with respect to USD and GBP, its falling w.r.t all the other major floating currencies. for example it has fallen 6% against euro in the past 3 months, similar against Canadian, Australian, Singapore dollars, Japanese Yen, Brazilian rial etc. Yes, it has to do with inflation in an indirect way in that both are a function of money supply. Typically over a long period of time currencies of countries having higher inflation would progressively lose its value although it may not be the case in the short term. Exchange rate also depends upon other factors like our trade deficits (import-export), FDI and FII inflows and outflows etc.

Cross posting from Chennai Economy thread.

__________________Everybody has a plan until they get punched in the face - Mike TysonThe only plan to successful investing is try not to get punched in the face - Myself

I guess it's all upside now and could reach $2000 an-ounce by end of next year. I have been following gold prices for a decade atleast. From my experience and from experts tips, Gold traditionally hits lower during Jan-Feb of every year and starts to pick up from end of Feb or beginning of March. I am using this as a tip to buy gold. Worked well so far.

For those in India who are looking for an alternative to physical gold Reliance is coming up with a gold fund. Check this out

I guess it's all upside now and could reach $2000 an-ounce by end of next year. I have been following gold prices for a decade atleast. From my experience and from experts tips, Gold traditionally hits lower during Jan-Feb of every year and starts to pick up from end of Feb or beginning of March. I am using this as a tip to buy gold. Worked well so far.

$2000 is a possible target but I wont count on it. Considering that it is on a 10 yr winning streak, i wouldn't be surprised if it takes a breather. 1700 - 1800 is what I am looking for at end 2012. Having said that, gold is still primarily end user driven market and i am positive in the medium term. Unless prices raise dramatically, we are not going to see any crash. It is definitely not in some bubble as some analysts predict.

http://www.kitco.com/
This is an excellent site on precious metals with in depth commentaries and analysis. But a note of caution - it is filled with lot of perma bulls on one side and perma bears on other side.

__________________Everybody has a plan until they get punched in the face - Mike TysonThe only plan to successful investing is try not to get punched in the face - Myself

I guess it's all upside now and could reach $2000 an-ounce by end of next year. I have been following gold prices for a decade atleast. From my experience and from experts tips, Gold traditionally hits lower during Jan-Feb of every year and starts to pick up from end of Feb or beginning of March. I am using this as a tip to buy gold. Worked well so far.

Quote:

Originally Posted by TShyam

$2000 is a possible target but I wont count on it. Considering that it is on a 10 yr winning streak, i wouldn't be surprised if it takes a breather. 1700 - 1800 is what I am looking for at end 2012. Having said that, gold is still primarily end user driven market and i am positive in the medium term. Unless prices raise dramatically, we are not going to see any crash. It is definitely not in some bubble as some analysts predict..

You both are right and wrong. Truth is it is all speculation and no one knows where the price will end up. Historically gold and commodities have never offered a hedge against inflation. I invest in gold just for the ornamental sake and for a bit of diversification. I try not to make it more than 2% of my portfolio.

You both are right and wrong. Truth is it is all speculation and no one knows where the price will end up. Historically gold and commodities have never offered a hedge against inflation. I invest in gold just for the ornamental sake and for a bit of diversification. I try not to make it more than 2% of my portfolio.

Do you think the price rise is due to speculation? On the contrary, in 2010 it was the end users - the eastern countries which drove up the price of gold and the speculative money (read investors) actually trimmed its positions.

Maybe your opinion is based on what you read in western press but frankly west no longer controls the gold price. What happened in 70's was entirely different when countries like India and rest of Asia which have cultural affinity for gold didnt have a sizeable economic weight. While the "experts" in the west look at what is happening through their lens, most completely ignore the actual driver of gold prices and come up with simple explanations like crisis, speculation, money supply, manipulation etc etc to explain the price movement.

In 2010 total gold mined was 2500 tonnes. India imported close to 1000 tonnes and China consumed another 550 or 600 tonnes. If you add the other gold affinity countries like Vietnam, Middle East, Korea, Japan, you will find that the demand is actually higher than the supply.

And regarding the statement that gold is not an inflation hedge, you cannot take the 80 peak as one point of reference and 99 trough as another point of reference and come to that conclusion. Historically, over thousands of years, gold has retained its value. You could buy the same amount of rice with 10 gms of gold as someone ruled by emperor Ashoka bought with the same amount of gold. Now that is inflation protection.

If my great great grandfather earned a few hundred grams of gold after a bountiful harvest and decided to hide that gold in a safe place instead of buying a bullock cart, I could use that same gold to buy a car now. But if he had decided to save it in cash, i could take that out and may be have something worthless to remember him by. That my friend, is inflation protection.

Ofcourse, in a growth economy like India, you are better off investing in tangible assets which are certain to give a better return going forward. So I would recommend minimal allocation (just enough to satisfy the lady of the house) in gold, but if you think the price of gold is speculative and is about to crash, you are in for a big surprise.

For the record: Gold price is hovering around $1400/ounce (21500 rupees per 10 grams)

__________________Everybody has a plan until they get punched in the face - Mike TysonThe only plan to successful investing is try not to get punched in the face - Myself

I meant that the year end prices you and KT believe will end up in are speculative at best. You don't know whether it will be 1000 or 2000. Sure it is in an upward trend now but it can go down too.

I don't follow western gold press. I believe gold lost its inflation hedge when the US delinked the dollar from gold and the rest of the world started to follow the dollar. I have not done the research but it will be interesting to see the inflation adjusted price of gold in rupee terms.